Multitouch support, finally! Thanks to generous donations of both hardware and source code, multitouch gestures for browsing, zooming and rotating are now available. Scrolling is also smoother on trackpads and other smooth scroll devices. Using scrolling to browse should also work better.
Uses a newer version of the archive reading code from The Unarchiver. Can now open more archive formats, including even ISO images.
Better compatibility with Snow Leopard. (Finding the sort order from the Finder works again, as does JPEG thumbnailing.)
Better support for PNM files.
More informative window titles when browsing archives.
Many other bugfixes: Viewing the clipboard works again, cropping does not crash, keyboard shortcuts work better, and more.

Support for viewing the unix PNM, XBM, and XPM formats, and also Dreamcast PVR.

Support for reading bitmap images from inside SWF and PDF files. These can
also be saved as normal image files. (Note that this does not mean you can
view normal PDF files! Only bitmap images will be shown.)

Support for more metadata formats: Photoshop, XMP and IPTC. Also support
for simple image forensics: Xee can analyze the quantization tables in a
JPEG image and look up what programs or cameras might have created it from
a database.

Translations into Czech and Simplified Chinese.

Uncompression engine from The Unarchiver included in the app, so
The Unarchiver no longer needs to be installed to read files from archives.

Support for reading files from archive and PDFs that require passwords.

Better support for Photoshop files.

Many interface bugfixes and tweaks. The image list should now also
update properly when reading files on network shares and FAT drives.

* Finally a universal binary! (Well, at least I beat Photoshop out the door.)
* However, Xee now requires Mac OS X 10.4. Users of 10.3 can still use Xee 1.2.1.
* Smoother display of scaled-down images, using the graphics hardware.
* Support for EXIF data.
* Rotation and cropping for all image types, with lossless saving for JPEGs, even when cropped. However, JPEGs are no longer automatically saved when rotating - use the menu option or Command-S to save.
* Tracks changes to the filesystem and updates file lists accordingly.
* Can sort images by name, date or size, and sorts in the same order as the Finder by default.
* Slideshow support.
* Support for Maya IFF images.
* Many interface tweaks.
* Massive internal rewrites, fixing lots of bugs, and hopefully not introducing too many new ones.